Corporate Insolvency Reforms 2020

The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 were passed by Federal Parliament on Thursday 10 December 2020. The reforms included in the bill are intended to take effect on 1 January 2021 to assist with the economic impacts of COVID-19 and to replace the temporary Covid relief measures with respect to statutory demands and insolvent trading. The reforms contemplate two new models/concepts

  • Small Business restructuring;

  • Simplified liquidation.

Small Business Restructuring “(VA Lite)”

Nature of Model:

  • Contemplates a debtor in possession model, coupled with a moratorium on creditors claims whilst the company in conjunction with a small business restructuring practitioner formulate a debt restructuring plan.

  • It incorporates a number of the characteristics of the Voluntary Administration “(VA)” regime but it is intended to be appropriate to small business as VA”s are seen to be cost prohibitive to small business.

Eligibility Criteria:

  • A company must be insolvent or likely to be insolvent.

  • Total liabilities have to be lower than the amount prescribed by the regulators to be $1 Million.

  • A company is not eligible to use the debt restructuring process if a director has previously used the process or the simplified liquidation process.

  • Payments to employees that are due and payable are to be paid up and tax lodgements are up to date before a plan could be put to creditors.

  • The intention here is to ensure the creditor profile and priority is simplified before undertaking the process.

Time frame:

  • The company has a 20 business day period to develop a plan to restructure the business’s debts.

  • Creditors have 15 business days to vote on the plan.

  • A restructuring plan will need to provide sufficient information so creditors can decide whether to accept or reject the plan.

Creditor rights:

  • Court proceedings and enforcement proceedings are stayed and cannot be begun or proceeded with during the debt restructuring process.

  • The rights of secured creditors, owners of property and lessors of property are consistent with those applying under the VA process.


  • More than 50% of creditors in value.

  • Related party creditors are excluded from voting.

  • This can be contrasted with the VA process where voting is initially on the voices and value only becomes relevant if a poll is requested and related party creditors may participate in voting.

Transitional Arrangements

The legislation foreshadows transitional arrangements to enable directors and practitioners to familiarise themselves with the new process.

The existing temporary relief measures with respect to protection from insolvent trading and statutory demands will be available to eligible business if they declare an intention to access the simplified restructuring process to its creditors, i.e. through ASIC website.

This transitional measure would only be available until 31 March 2021.

For those businesses which do not declare an intention or actually make an appointment the standard position with respect to insolvent trading and statutory demands will be restored.

Other key features

  • As debtor in possession companies/their directors can only deal with company property in the ordinary course of business.

  • There are no physical meetings of creditors. Proposals are voted on electronically or other means of technology e.g. circulating resolution.

  • Entry into a debt restructuring process constitutes an act of insolvency.

  • If the restructuring plan is not accepted, or terminated - the Company can utilise one of the more traditional forms of Administration such as VA or CVL and creditors are also free to pursue their rights.

Simplified liquidation:

The proposed simplified liquidation process is intended to reduce the costs of liquidation for eligible small business, with a view to increasing potential returns to creditors.

It appears to be essentially a CVL without.

  • The investigations associated with a Section 533 report.

  • Meetings of creditors.

  • Committees of Inspection.

  • ASIC and creditors cannot appoint a reviewing liquidator.

  • The regulations include restrictions on the recovery of preference payments i.e. if the creditor received no more than $30,000 more than 3 months before the relation back date.

Eligibility Criteria:

  • The company is insolvent.

  • Liabilities do not exceed an amount prescribed in the regulations to be $1 million.

  • No director has been a director of a company that has previously used the simplified liquidation process or a debt restructuring process.

  • The company’s tax lodgements are up to date.

Time for adoption

A liquidator cannot adopt the simplified liquidation process if more than 20 business days have passed since the appointment.

A liquidator must give creditors at least 10 business days notice before adopting the simplified process.

The liquidator cannot adopt the simplified process if more than 25% in value of creditors request the liquidator not to follow the simplified liquidation process.


If you suspect your company is in financial difficulty, get proper accounting and legal advice as early as possible, as this increases the likelihood of the company surviving.

One of the most common reasons for the inability to save a company in financial distress is that professional advice was sought too late. Do not have a ‘head in the sand’ attitude, hoping that things will improve—they rarely do. Table 1 lists some of the warning signs of insolvency.

Advocates of these reforms hail them as a game changer for small business.

Whilst that remains to be seen, their effectiveness will to a large degree be influenced by the level of buy in by directors of SMES and their advisors.

To determine whether you are eligible for small business restructuring and/or if it is the best solution for your business contact your KPI Business representative.

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